TIU V. CA (1999) | E QUAL
12
PROTECTION CLAUSE
February 5, 2017
G.R. No. 127410, 37 SCRA 99, January 28,
1971
DOCTRINES:
1. The Constitution does not require absolute
equality among residents. It is enough that
all persons under like circumstances or
conditions are given the same privileges
and required to follow the same
obligations.
2. The classification based on a valid and
reasonable standard does not violate the
equal protection clause.
FACTS:
1. RA 7227 seeks to accelerate the conversion
of military reservations into other productive
uses. Section 12 thereof created the Subic
Special Economic Zone (SSEZ),
which includes the City of Olongapo,
Municipality of Subic and the lands
occupied by the Subic Naval Base and
granted special privileges.
2. Thereafter, EO 97 was issued to clarify the
application of the incentives provided by RA
7227. Sec. 1 of EO 97 provides for the tax
and duty-free importations shall only be
applied raw materials, capital goods and
equipment brought in by business enterprises
into the SSEZ. Except for these items,
importations of other goods into the SSEZ,
whether by business enterprises, resident
individuals are subject to the taxes and duties
under Philippine laws. The exportation or
removal of tax and duty free goods from the
territory of the SSEZ to other parts of the
Philippines shall be subject to duties and
taxes under Philippine laws.
3. Section 1.1 thereof grants the enjoyment of
the tax and duty incentives to the business and
enterprises and residents within the
presently fenced-in former Subic Naval
Base only. It excludes the the first two
component cities as provided for by Sec.
of RA 7227.
ISSUES:
Whether EO 97-A violates the equal protection
of the laws?
RULING:
 No, EO 97-A is not violative of the equal
protection of the laws.
 The fundamental right of equal protection of
the laws is not absolute, but is subject to
reasonable classification.
 Classification, to be valid, must (1) rest on
substantial distinctions, (2) be germane to the
purpose of the law, (3) not be limited to
existing conditions only, and (4) apply
equally to all members of the same class.
 RA 7227 aims primarily to accelerate the
conversion of military reservations into
productive uses.
 The Government provides enticements as to
persuade and attract investors to pour in
capital with the said military bases. Among
such enticements are: (1) a separate customs
territory within the zone, (2) tax-and-duty-
free importations, (3) restructured income
tax rates on business enterprises within the
zone, (4) no foreign exchange control, (5)
liberalized regulations on banking and
finance, and (6) the grant of resident status to
certain investors and of working visas to
certain foreign executives and workers.
 The purpose of the law is to convert former
military base to productive use for the benefit
of the Philippine economy. Hence, there was
no reasonable basis to extend the tax
incentives in RA 7227.
Republic v Mambulao Lumber Company (1962)
Republic v Mambulao Lumber Company, et al
GR No L-17725, February 28, 1962
FACTS:
Mambulao Lumber Company paid the
Government a total of P 9,127.50 as reforestation
charges for the years 1947 to
1956. It is the company’s contention that said sum
of 9,127.50, not having been used in the
reforestation of the area covered by its license, the
same is refundable to it or may be applied in
compensation of P 4,802.37 due from it as forest
charges.
Court of First Instance of Manila ordered the
company to pay the government the sum of P
4,802.37 with 6% interest thereon from date of
the filing of the complaint until fully paid, plus
costs. Thus, the present appeal.
ISSUE: Whether the set-off or compensation is
proper
RULING:
No. There is nothing in the law which requires
that the amount collected as reforestation charges
should be used exclusively for the reforestation of
the area covered by the license of a licensee or
concessionaire, and that if not so used, the same
shall be refunded to him.
The conclusion seems to be that the amount paid
by a licensee as reforestation charges is in the
nature of a tax which forms part of the Forestation
Fund, payable by him irrespective of whether the
area covered by his license is reforested or not.
Said fund, as the law expressly provides, shall be
expended in carrying out the purposes provided
for thereunder, namely, the reforestation or
afforestation, among others, of denuded areas
needing reforestation or afforestation.
The weight of authority is to the effect that
internal revenue taxes, such as the forest charges
in question is not subject to set-off or
compensation. Taxes are not in the nature of
contracts between the parties but grow out of a
duty to, and are positive acts of the government,
to the making and enforcing of which, the
personal consent of the individual taxpayers is not
required.
With respect to the forest charges which the
company has paid to the government, they are in
the coffers of the government as tax collected,
and the government does not owe anything. It is
crystal clear that the Republic of the Philippines
and the Mambulao Lumber Company are not
creditors and debtors of each other, because
compensation refers to mutual debts.
Philex Mining Corporation v CIR (1998)
Philex Mining Corporation v CIR GR No
125704, August 28, 1998
FACTS:
BIR sent a letter to Philex asking it to settle its
tax liabilities amounting to P124 million. Philex
protested the demand for payment stating that it
has pending claims for VAT input credit/refund
amounting to P120 million. Therefore, these
claims for tax credit/refund should be applied
against the tax liabilities.
In reply the BIR found no merit in Philex’s
position. On appeal, the CTA reduced the tax
liability of Philex.
ISSUES:
1. Whether legal compensation can
properly take place between the VAT
input credit/refund and the excise tax
liabilities of
Philex Mining Corp;
2. Whether the BIR has violated
the NIRC which requires the refund of
input taxes within 60 days
 3. Whether the violation by BIR is
sufficient to justify non-payment by
Philex
RULING:
1. No, legal compensation cannot
take place. The government and the
taxpayer are not creditors and debtors of
each other.
2. Yes, the BIR has violated the
NIRC. It took five years for the BIR to
grant its claim for VAT input credit.
Obviously, had the
BIR been more diligent and judicious
with their duty, it could have granted the
refund
3. No, despite the lethargic manner
by which the BIR handled Philex’s tax
claim, it is a settled rule that in the
performance of
government function, the State is not
bound by the neglect of its agents and
officers. It must be stressed that the
same is not a valid reason for the non-
payment of its tax liabilities.
Ormoc Sugar Company Inc. vs Treasurer of
Ormoc City
G.R. No. L-23794 February 17, 1968
Facts:
The Municipal Board of Ormoc City passed a
municipal tax ordinance imposing on any and all
productions of centrifugal sugar milled at the
Ormoc Sugar Company Inc. one (1%) percent
per export sale to the US and other foreign
countries.
In lieu, Ormoc Sugar filed before the CFI of
Leyte a complaint against the City of Ormoc, its
Treasurer, Municipal Board and Mayor, alleging
said ordinance is violative of the equal
protection clause and the rule of uniformity of
taxation, among other things. Ormoc Sugar
Company Inc. was the only sugar central in
Ormoc City at the time.
Issue:
WON the ordinance is violative of the
constitutional provision on equal protection?
Ruling:
The taxing ordinance should not be singular and
exclusive as to exclude any subsequently
established sugar central, of the same class as
the present company, from the coverage of the
tax. As it is now, even if later a similar company
is set up, it cannot be subject to the tax because
the ordinance expressly points only to the
company as the entity to be levied upon.
EPC applies only to persons or things identically
situated and doesn’t bar a reasonable
classification of the subject of legislation.
A classification is reasonable where: 1) it is
based on substantial distinctions which make
real differences; (2) these are germane to the
purpose of the law; (3) the classification applies
not only to present conditions but also to future
conditions which are substantially identical to
those of the present; (4) the classification applies
only to those who belong to the same class.
Lung Center of the Philippines vs. Quezon City
G.R. No. 144104, June 29, 2004
Petitioner: Lung Center of the Philippines
Respondents: Quezon City and Constantino P.
Rosas, in his capacity as City Assessor of
Quezon City
Facts:
The petitioner is a non-stock and non-
profit entity established on January 16, 1981 and
a registered owner of a parcel of land located at
Quezon Avenue corner Elliptical Road, Central
District, Quezon City. Erected in the middle of
the aforesaid lot is a hospital known as the Lung
Center of the Philippines. A big space at the
ground floor is being leased to private parties,
for canteen and small store spaces, and to
medical or professional practitioners who use the
same as their private clinics for their patients
whom they charge for their professional
services. Almost one-half of the entire area on
the left side of the building along Quezon
Avenue is vacant and idle, while a big portion on
the right side, at the corner of Quezon Avenue
and Elliptical Road, is being leased for
commercial purposes to a private enterprise.
On June 7, 1993, both the land and the
hospital building of the petitioner were assessed
for real property taxes in the amount
of P4,554,860 by the City Assessor of Quezon
City. On August 25, 1993, the petitioner filed a
Claim for Exemption that it is a charitable
institution. The petitioners request was denied,
and a petition was, thereafter, filed before the
Local Board of Assessment Appeals of Quezon
City (QC-LBAA) for reversal. The petitioner
alleged that under Section 28, paragraph 3 of the
1987 Constitution, the property is exempt from
real property taxes. It averred that a minimum of
60% of its hospital beds are exclusively used for
charity patients and that the major thrust of its
hospital operation is to serve charity patients.
The petitioner contends that it is a charitable
institution and, as such, is exempt from real
property taxes. The QC-LBAA rendered
judgment dismissing the petition and holding the
petitioner liable for real property taxes.
The QC-LBAAs decision was, likewise,
affirmed on appeal by the Central Board of
Assessment Appeals of Quezon City (CBAA)
which ruled that the petitioner was not a
charitable institution and that its real properties
were not actually, directly and exclusively used
for charitable purposes; hence, it was not entitled
to real property tax exemption under the
constitution and the law. The petitioner sought
relief from the Court of Appeals, which rendered
judgment affirming the decision of the CBAA.
Thus, the petitioner files a petition for review on
certiorari before the Supreme Court.
Issue:
1. Whether or not petitioner is a charitable
institution within the context of PD 1823 and the
1973 and 1987 Constitution and Section 234(b)
of RA 7160.
2. Whether or not petitioner is exempted from real
property taxes.
Discussion:
1. The Court ruled that the petitioner is a charitable
institution within the context of the 1973 and
1987 Constitution. Under PD No. 1823, the
petitioner is a non-profit and non-stock
corporation which, subject to the provisions of
the decree, is to be administered by the Office of
the President with the Ministry of Health and the
Ministry of Human Settlements. The purpose for
which it was created was to render medical
services to the public in general including those
who are poor and also the rich, and become a
subject of charity. Under Presidential Decree
No. 1823, petitioner is entitled to receive
donations, even if the gift or donation is in the
form of subsidies granted by the government.
2. Partly No. Under PD No. 1823, the petitioner
does not enjoy any property tax exemption
privileges for its real properties as well as the
building constructed thereon.The property tax
exemption under Section 28(3), Article VI of the
Constitution is for the property taxes only. This
provision was implanted by Sec.243 (b) of RA
No. 7160 which provides that in order to be
entitled to the exemption, the petitioner must be
able to prove that: it is a charitable institution
and; its real properties are actually, directly and
exclusively used for charitable purpose.
Accordingly, the portions occupied by the
hospital used for its patients are exempt from
real property taxes while those leased to private
entities are not exempt from such taxes.
Held:
The petition was partly granted. The
respondent Quezon City Assessor was directed
to determine the precise portions of the land and
the area thereof which are leased to private
persons, and to compute the real property taxes
due thereon as provided for by law.\
Herrera v Quezon City Board of Assessment
(1961)
Herrera v Quezon City Board of Assessment GR
No L-15270, September 30, 1961
FACTS:
In 1952, the Director of the Bureau of Hospitals
authorized Jose V. Herrera and Ester Ochangco
Herrera to establish and operate the St.
Catherine’s Hospital. In 1953, the Herreras sent
a letter to the Quezon City Assessor requesting
exemption from payment of real estate tax on the
hospital, stating that the same was established
for charitable and humanitarian purposes and not
for commercial gain. The exemption was
granted effective years 1953 to 1955. In 1955,
however, the Assessor reclassified the properties
from “exempt” to “taxable” effective 1956, as it
was ascertained that out of the 32 beds in the
hospital, 12 of which are for pay-patients. A
school of midwifery is also operated within
premises of the hospital.
ISSUE:
Whether St. Catherine’s is exempt from realty
tax
RULING:
Yes. The admission of pay-patients does not
detract from the charitable character of a
hospital, if all its funds are devoted exclusively
to the maintenance of the institution as a public
charity.
The exemption extends to facilities which are
incidental to and reasonably necessary for the
accomplishment of said
purpose – a school for training nurses, a nurses’
home, etc.
Francia v Intermediate Appellate Court (1988)
Francia v Intermediate Appellate Court GR No
L-67649, June 28, 1988
FACTS:
Engracio Francia was the registered owner of a
house and lot located in Pasay City. A portion of
such property was
expropriated by the Republic of the Philippines
in 1977. It appeared that Francia did not pay his
real estate taxes from 1963 to 1977. Thus, his
property was sold in a public auction by the City
Treasurer of Pasay City. Francia filed a
complaint to annual the auction sale. The lower
court dismissed the complaint and the
Intermediate Appellate Court affirmed the
decision of the lower court in toto. Hence, this
petition for review. Francia contends that his tax
delinquency of P 2,400 has been extinguished by
legal compensation. He claims that the
government owed him P 4,116 when a portion of
his land was expropriated on October 15, 1977.
ISSUE:
May the expropriation payment compensate for
the real estate taxes due?
RULING:
No. There can be no offsetting of taxes against
the claims that the taxpayer may have against the
government. A person
cannot refuse to pay a tax on the ground that the
government owes him an amount equal to or
greater than the tax being collected. The
collection of a tax cannot await the results of a
lawsuit against the government. Internal revenue
taxes cannot be the subject of compensation. The
Government and the taxpayer are not mutually
creditors and debtors of each other under
Article 1278 of the Civil Code and a claim of
taxes is not such a debt, demand, contract or
judgment as is allowed to be set-off.
Moreover, the amount of P4,116 paid by the
national government for the 125 square meter
portion of his lot was deposited with the
Philippine National Bank long before the sale at
public auction of his remaining property. It
would have been an easy matter to withdraw P
2,400 from the deposit so that he could pay the
tax obligation thus aborting the sale at public
auction. Thus, the petition for review is
dismissed. The taxes assessed are the obligations
of the taxpayer arising from law, while the
money judgment against the government is an
obligation arising from contract, whether express
or implied.
Domingo v Garlitos (1963)
Domingo v Garlitos
GR No L-18994, June 29, 1963
FACTS:
In the 1960 case of Domingo v Moscoso, the
Supreme Court declared as final and executory
the order for the payment by the estate of the late
Walter Scott Price of estate and inheritance
taxes, charges and penalties, amounting to
P40,058.55 issued by the Court of First Instance
– Leyte. The fiscal then presented a petition for
the execution of the judgment before the Court
of First Instance – Leyte.
The petition was denied as the execution is not
justifiable as the government is indebted to the
estate under administration in the amount of P
262,200. Hence, the present petition for
certiorari and mandamus.
ISSUE:
Is execution proper?
RULING:
No. The tax and the debt are compensated. The
court having jurisdiction of the estate had found
that the claim of the estate against the
government has been recognized and an amount
of P262,200 has already been appropriated by a
corresponding law (RA 2700). Under the
circumstances, both the claim of the
Government for the inheritance taxes and the
claim of the intestate for services rendered have
already become overdue and demandable as well
as fully liquidated.
Compensation, therefore, takes place by
operation of law, in accordance with Article
1279 and 1290 of the Civil Code, and both debts
are extinguished to their concurrent amounts. If
the obligation to pay taxes and the taxpayer’s
claim against the government are both overdue,
demandable, as well as fully liquidated,
compensation takes place by operation of law
and both obligations are extinguished to their
concurrent amounts.
CIR V SC JOHNSON INC. June 25, 1999
Facts: Respondent is a domestic corporation
organized and operating under the Philippine
Laws, entered into a licensed agreement with the
SC Johnson and Son, USA, a non-resident
foreign corporation based in the USA pursuant
to which the respondent was granted the right to
use the trademark, patents and technology
owned by the later including the right to
manufacture, package and distribute the products
covered by the Agreement and secure assistance
in management, marketing and production from
SC Johnson and Son USA.
For the use of trademark or technology,
respondent was obliged to pay SC Johnson and
Son, USA royalties based on a percentage of net
sales and subjected the same to 25% withholding
tax on royalty payments which respondent paid
for the period covering July 1992 to May 1993
in the total amount of P1,603,443.00.
On October 29, 1993,
respondent filed with the International
Tax Affairs Division (ITAD) of the BIR
a claim for refund of overpaid
withholding tax on royalties arguing
that, the antecedent facts attending
respondents case fall squarely within the
same circumstances under which said
 MacGeorge and Gillette rulings were
issued. Since the agreement was
approved by the Technology Transfer
Board, the preferential tax rate of 10%
should apply to the respondent. So,
royalties paid by the respondent to SC
Johnson and Son, USA is only subject to
10% withholding tax.
The Commissioner did not act on said
claim for refund. Private respondent SC Johnson
& Son, Inc. then filed a petition for review
before the CTA, to claim a refund of the
overpaid withholding tax on royalty payments
from July 1992 to May 1993.
On May 7, 1996, the CTA rendered its
decision in favor of SC Johnson and ordered the
CIR to issue a tax credit certificate in the amount
of P163,266.00 representing overpaid
withholding tax on royalty payments beginning
July 1992 to May 1993.
The CIR thus filed a petition for review
with the CA which rendered the decision subject
of this appeal on November 7, 1996 finding no
merit in the petition and affirming in toto the
CTA ruling.
Issue: Whether or not tax refunds are considered
as tax exemptions.
Held: It bears stress that tax refunds are in the
nature of tax exemptions. As such they are
registered as in derogation of sovereign authority
and to be construed strictissimi juris against the
person or entity claiming the exemption. The
burden of proof is upon him who claims the
exemption in his favor and he must be able to
justify his claim by the clearest grant of organic
or statute law. Private respondent is claiming for
a refund of the alleged overpayment of tax on
royalties; however there is nothing on record to
support a claim that the tax on royalties under
the RP-US Treaty is paid under similar
circumstances as the tax on royalties under the
RP-West Germany Tax Treaty.
Caltex Philippines, Inc. v COA (1992)
Caltex Philippines, Inc. v Commission on Audit
GR No. 92585, May 8, 1992
FACTS:
In 1989, COA sent a letter to Caltex, directing it
to remit its collection to the Oil Price
Stabilization Fund (OPSF), excluding that
unremitted for the years 1986 and 1988, of the
additional tax on petroleum products authorized
under the PD 1956. Pending such remittance, all
of its claims for reimbursement from the OPSF
shall be held in abeyance. The grant total of its
unremitted collections of the above tax is
P1,287,668,820.
Caltex submitted a proposal to COA for the
payment and the recovery of claims. COA
approved the proposal but prohibited Caltex
from further offsetting remittances and
reimbursements for the current and ensuing
years. Caltex moved for reconsideration but was
denied. Hence, the present petition.
ISSUE:
Whether the amounts due from Caltex to the
OPSF may be offsetted against Caltex’s
outstanding claims from said funds
RULING:
No. Taxation is no longer envisioned as a
measure merely to raise revenue to support the
existence of government. Taxes may be levied
with a regulatory purpose to provide means for
the rehabilitation and stabilization of a
threatened industry which is affected with public
interest as to be within the police power of the
State.
PD 1956, as amended by EO 137, explicitly
provides that the source of OPSF is taxation. A
taxpayer may not offset taxes due from the
claims he may have against the government.
Taxes cannot be subject of compensation
because the government and taxpayer are not
mutually creditors and debtors of each other and
a claim for taxes is not such a debt, demand,,
contract or judgment as is allowed to be set-off.
Hence, COA decision is affirmed except that
Caltex’s claim for reimbursement of
underrecovery arising from sales to the National
Power Corporation is allowed.